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Can you? A defined benefit plan is ultimately involving someone taking a risk. One either makes the risk very small, and therefore being a very expensive benefi

Can you? A defined benefit plan is ultimately involving someone taking a risk. One either makes the risk very small, and therefore being a very expensive benefit from the very beginning, or be aggressive, and risk being an underfunded benefit. Either way you slice it, someone providing defined contributions instead is far safer, and can safely outcompete the defined benefit company, as they aren't taking on either side of the risk: The employee is. Note that the costs of trucking are the same either way: Paying for the contribution later is precisely a way to be very competitive now, as the idea of a safe, defined pension that you self fund is much nicer until you see what it takes out of your paycheck.

WkndTriathlete 3y ago
> Can you? A defined benefit plan is ultimately involving someone taking a risk. Yup. No less than Warren Buffett, who spent literally his entire career performing risk analyses, could figure out a way to manage defined benefit plan risk, and stated as such in a (now famous) memo in the late 60s or early 70s. Couple that with the number of pension defaults and pension haircuts that have occurred and are likely to continue to occur and 401(k) plans look a lot more attractive, both to the employer and to the employee.
- eigenvalue 3y ago
  The memo in question: https://davidcoveney.com/wp-content/uploads/2019/12/160301289-Warren-Buffett-Katharine-Graham-Letter.pdf https://davidcoveney.com/wp-content/uploads/2019/12/16030128... It helps a LOT if you also have an investing genius giving you tips on how to allocate the plan assets!
- nradov 3y ago
  In theory it's possible to make defined benefit pension programs work. In practice they almost always eventually fall apart. The risk is large as to make them essentially financial malpractice. Defined contribution plans such as 401(k) are much safer for workers and taxpayers.

WkndTriathlete 3y ago

> Can you? A defined benefit plan is ultimately involving someone taking a risk. Yup. No less than Warren Buffett, who spent literally his entire career performing risk analyses, could figure out a way to manage defined benefit plan risk, and stated as such in a (now famous) memo in the late 60s or early 70s. Couple that with the number of pension defaults and pension haircuts that have occurred and are likely to continue to occur and 401(k) plans look a lot more attractive, both to the employer and to the employee.

eigenvalue 3y ago
The memo in question: https://davidcoveney.com/wp-content/uploads/2019/12/160301289-Warren-Buffett-Katharine-Graham-Letter.pdf https://davidcoveney.com/wp-content/uploads/2019/12/16030128... It helps a LOT if you also have an investing genius giving you tips on how to allocate the plan assets!
nradov 3y ago
In theory it's possible to make defined benefit pension programs work. In practice they almost always eventually fall apart. The risk is large as to make them essentially financial malpractice. Defined contribution plans such as 401(k) are much safer for workers and taxpayers.